Carvana to lay off 2,500; executives to forgo salaries for rest of year

Carvana Co. plans to lay off 2,500 employees, or about 12 percent of its work force, according to a document it filed Tuesday with the U.S. Securities and Exchange Commission.

Those employees are primarily in Carvana's operations groups, the company said. In connection to those cuts, the online used-vehicle retailer will "transition operations away" from a few of its logistics hubs and from its inspection and reconditioning center in Euclid, Ohio.

Carvana said its executive team will forgo their salaries for the rest of 2022 "to help contribute to the severance pay for departing team members."

"We believe these decisions, while extremely difficult, will result in Carvana restoring a better balance between its sales volumes and staffing levels and facilitate Carvana returning to efficient growth on its mission to change the way people buy and sell cars," the company said in the filing.

The layoffs relate to “recent macroeconomic factors that are significantly impacting automotive retail,” a Carvana spokesperson said in a statement.

They come just weeks after Carvana reported a $506 million loss in the first quarter as high used-vehicle prices, rising interest rates and other issues affecting the auto industry dented sales. It felt higher costs and a lower profit per vehicle than expected.

It’s not just Carvana taking a hit in the tumultuous market. Digital retail companies that received a long period of boosted sales and elevated customer interest during the COVID-19 pandemic are now seeing some cooldown, and it’s reflecting in their earnings.

Vroom Inc., one of Carvana’s competitors in the online used-retail space, on Monday said it would consider a workforce reduction as part of a larger plan to realign its business strategy and boost gross profit per vehicle sold. Vroom also appointed a new CEO.

The company on Tuesday finalized its $2.2 billion acquisition of ADESA U.S., the nation’s No. 2 auction house.

Analyst insight

The layoffs are the first step taken as part of Carvana’s plan pare costs amid challenging sales, Stephens Inc. analyst Daniel Imbro said in a research note.

Affordability could remain troublesome for Carvana and more cost cutting could happen in the coming weeks, Imbro said.

“While this reduction should help with cash burn, we believe it is a recognition that these headwinds may not pass as quickly as hoped,” Imbro said.

Carvana said it would post more details about its operating plan to its investor relations website later in the week.

Carvana said the laid-off employees will get four weeks of pay plus an extra week for every year they have been with the company.

Carvana’s stock has fallen from the $376 high it reached last August to less than $40 as of Tuesday. Most recently shares slipped 1.6 percent to $38.12 as of 3:20 pm EDT Tuesday.